(ADJUSTMENT OF DEBTS OF INDIVIDUAL WITH REGULAR INCOME a/k/a THE REPAYMENT PLAN)
A few unfortunate events can lead to a cycle of debt which quickly becomes impossible to overcome. The law offers a solution by providing a way for you to eliminate some or all of your debt. Designed to provide honest but unfortunate debtors a “fresh start,” the Chapter 13 can allow you to reorganize for your financial future, and halt bill collectors, wage garnishments and lawsuits to give you the breathing room necessary to do so.
If you qualify, a Chapter 13 will allow you to retain your home while paying off a percentage of your unsecured debts. You will be required to make monthly “plan” payments to the Bankruptcy Trustee. The Bankruptcy Trustee then pays your creditors. The plan payments will need to be made for three to five years, after which time you will owe nothing to your pre-filing unsecured creditors. ANAND LAW can devise an economically feasible plan which will allow you to retain your home and pay off unsecured debtors at an affordable rate.
If you are facing foreclosure, filing for Chapter 13 bankruptcy may allow you to save your home. ANAND LAW can navigate the bankruptcy and real estate laws in order to allow you to halt foreclosure and make reasonable payments to continue living in your home.
In a Chapter 13 bankruptcy, you can remove fully unsecured liens from your primary residence. This includes junior mortgages (including HELOC), HOA, tax, and judgment liens.
If you have over $1,184,200 in secured debt, you are not eligible for a Chapter 13, but you can still reorganize your financial situation with a Chapter 11. A Chapter 11 can be used to prevent foreclosure, retain multiple properties, and remove liens and “cram down” mortgages (i.e. reduce the mortgage to the market value of the property). Anand Law can evaluate your situation and determine what is best for you. Click here for more information on Chapter 11 bankruptcy.
An objection may be filed as a Motion or an Adversary Proceeding (“AP”), but compliance with other rules is required, and in certain instances an AP is required. One such instance is “a proceeding to determine the validity, priority, or extent of a lien or other interest in property” (see FRBP 7001(2)).
In order to be eligible to file for Chapter 13 Bankruptcy, the filing individual(s) must owe less than $1,184,200 in liquidated, noncontingent secured debts, and less than $394,725 in liquidated, noncontingent unsecured debts. 11 U.S.C. §109(e). The debt limitations are adjusted every 3 years, with the next adjustment set to occur on April 1, 2019. 11 U.S.C. §104(b).
Secured debts include home mortgages, judgment liens, and car loans. Unsecured debts include credit card bills, medical bills, and personal loans (if a personal loan is secured by property, it will count towards the secured debt limitations).
It is important to keep in mind that a Chapter 13 debtor (the party filing, including a spouse in a joint petition) must meet these debt eligibility limits as of the petition filing date. If the debts are lowered after the filing date, this will not apply retroactively to make a debtor qualify if they did not qualify at the time of filing. See, In re Smith, 419 B.R. 826, 829 (Bankr. C.D. Cal. 2009). See also, Scovis v. Henrichsen, 249 F.3d 975, 981 (9th Cir. 2001) (Eligibility to be a Chapter 13 debtor is determined as of the petition date).
See also, CHAPTER 13 REAL PROPERTY VALUATIONS
Real property valuations are used in Chapter 13 bankruptcy proceedings to determine if liens are unsecured or secured, and thus whether or not they can be removed. Valuations are also used to determine if the debtor (the filing party) falls within the debt eligibility limits—if a lien is fully unsecured, it will go toward the unsecured debt limitation, and if it is fully secured or partially secured, it will go toward the secured debt limitation limit.
Property values change constantly, making a critical question, when does the court value the property for the purposes stated above? Unfortunately, due to a lack of clarity in the bankruptcy code, the time for determining when a property is valued varies by Judge.
In a Chapter 13 bankruptcy, you can remove fully unsecured liens from your primary residence (i.e. the balance owed on higher-priority liens must fully exceed the market value of the property). This includes junior mortgages (including HELOC), HOA, tax, and judgment liens.
This depends on a variety of factors, including what your score currently is, what chapter you file for, and if you successfully complete your bankruptcy. While filing for bankruptcy may lower a credit score, it will not necessarily do so. In fact, if you already have a low credit score, filing can actually increase your score, especially after successful completion of a Chapter 13 or Chapter 11 bankruptcy plan in which you pay off some of your debt. Chapter 7 bankruptcy can also, in certain instances, increase a low credit score, after successful discharge. It is also important to know that you can always re-build your credit after bankruptcy, and ANAND LAW can guide you on how to do so.
In order to understand the unpredictability of how bankruptcy may affect your credit score, it is helpful to understand how credit scores are calculated.
CALCULATION OF YOUR CREDIT SCORE
Credit bureaus (also known as “credit reporting agencies”) act an intermediary between consumers, businesses and lenders. The credit bureaus collect data from various sources, and then use this data to create your credit score. The bureaus use third-party companies, each who employ their own methodology, to calculate these scores.
THE MAJOR CREDIT BUREAUS AND SCORING AGENCIES
There are dozens of credit reporting agencies, but the three national agencies that a majority of lenders and businesses use are Experian, Equifax, and Transunion. Similarly, there are many credit scoring companies, but the two most common are FICO and VantageScore. Experian Equifax and Transunion came together to create VantageScore, and all continue to use them to generate credit scores.
The credit scores are based on how the various data collected interacts with each other. There are approximately 220 million consumers that credit reports have been created for, and approximately 36 billion pieces of credit data utilized in credit reports every year to create the credit scores (source: VantageScore).
The exact methodology used is complicated and uncertain, but factors include: payment history with lenders, banks, and credit card companies; amounts owed; length of delinquencies; length of accounts in good standing; and, types of credit being used. Scores from each bureau may differ for a variety of reasons, including the timing of the data provided.
IMPROVING YOUR CREDIT SCORE
Regardless of the credit bureau (e.g., Experian, Equifax, or Transunion), or the scoring agency (e.g., FICO or VantageScore), you can improve your credit score, no matter how bad it is, and no matter the reason for it being low (whether due to bad payment history, repossessions, judgments, liens, foreclosure, or other). In general, you can improve your credit score by using credit (e.g., through a credit card, line of credit, or loan), and paying bank all use of that credit on time. The longer you consistently pay on time, and the higher the amount of credit being used, the better your credit score will be. You can re-establish your credit even after repossessions, judgments, liens, or foreclosure by maintaining a pattern of using credit and repaying the lender timely. There are lenders willing to extend credit to nearly anyone, regardless of their score, and even lenders that extend credit to individuals in active bankruptcy proceedings. However, it is important to note that, in general, the lower your credit score, the more it will cost to obtain the credit (i.e., the higher interest rate you will receive)–this makes it even more critical that you pay on time. The bottom line is that it is not hopeless–with some patience and organization to manage your finances, you can re-establish and build your credit score.